Exposing the dark secrets of Texas’ wholesale power market

electric tower

Guido Gerding [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0/)%5D

One of the darkest secrets of Texas’ so-called deregulated electricity system, which is now almost 20 years old, is the wholesale power market. Wholesale prices fluctuate rapidly, and they affect prices that retailers must pay to get electricity from generators.

For years, I’ve been hearing complaints from traders about one party or another supposedly causing price spikes in the wholesale market, but no trader wants to come forward and put their name to the allegations. The reason is simple: they don’t want to get shut out of the market. Besides, proving that a particular spike is the result of actual manipulation is difficult, and the Electric Reliability Council of Texas, which is supposed to police such things, has shown little interest in stopping bad price signals.

Griddy, however, is a California electricity retailer that’s new to the opacity of the Texas market. It inadvertently pulled back the curtain on this shadowy corner of electricity deregulation, when it noticed that wholesale prices on May 30 spiked to $9,000 a megawatt hour — the maximum allowed by ERCOT — for no apparent reason. Griddy, as the Houston Chronicle’s L.M. Sixel wrote recently, then did something no one has done in the past 20 years: it calculated the price of the spike.

Griddy determined the cost was about $3 per customer, but said it also expected ERCOT to reprice the obvious error. ERCOT, however, doesn’t do that. Since most consumers buy electricity through long-term contracts, the effects of these spikes are muted, and the grid operator says that repricing improper trades would cause market instability.

It’s not often you hear a market cop argue that inaccurate pricing makes markets more stable, but that’s essentially what ERCOT is saying. No doubt, Jordan Belfort, the self-ordained “Wolf of Wall Street” is kicking himself for not making that argument to the Securities and Exchange Commission back in the day.

Markets, of course, function most efficiently when the pricing is most accurate. But the wholesale electricity market has been an open frontier of anything-goes pricing for years. Griddy’s revelation caused ERCOT board members to ask for more information, and a subsequent study revealed 55 similar incidents in a four-month period this spring, Sixel wrote.

(Calpine, a generator, admitted it was behind the May 30 error, which it blamed on a low-level IT employee, Sixel reported.)

ERCOT later admitted to the Public Utility Commission that these sorts of mistakes happen as much as once a day. In other words, the problem is a lot bigger than one errant IT guy. It appears that at any given moment, wholesale electricity prices are likely to be as much fiction as fact.

The market corrects, of course, but that’s not the point. Nor is the issue whether consumers are directly affected isn’t the issue, because deregulation in Texas was never about benefiting consumers. Griddy’s findings became the basis for a complaint filed with the PUC by the trading firm Aspire Commodities, which noted that the pricing irregularity in May resulted in $18 million being transferred to generators who sold power at the inflated prices.

And if, as ERCOT admits, this sort of thing goes on daily, then the entire wholesale market is operating more like a casino, with generators profiting from “mistakes” of inaccurate pricing.

The next study the ERCOT board should commission is whether these daily price manipulations are pushing up average prices over the long term, because if so, then consumers are paying more than they should for electricity in this alleged free market no matter how much they shop around among retailers.

Griddy’s revelation shows that after 20 years of trying to create transparent markets for electricity, Texans are still left in the dark.

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Rational Middle Season 1 is a Wrap!

For the past couple of years, I’ve been associated with a free, web-based video series, the Rational Middle of Immigration. The goal is to start a discussion around the issue based on facts rather than emotions and misconceptions.

This week, we wrapped up our first season with the release of a two-part finale — “Undocumented in America” (above) and “The Golden Door” (below).

This has been an incredible learning experience for me as I delved into the topic of immigration. I’ve gotten meet some amazing folks and learn a whole new set of skills. Of course, immigration remains an important topic, and one that Congress is showing little interest in addressing, so our work is far from over.

If you like what you see, check out the other eight episodes in the season on our website, and if you’d like to support our efforts and help create a Season 2, you can donate at the bottom of the page.

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What Happens When a Houston Energy Guru Messes With the Power Grid?

superpower-book-review-1250x0-c-defaultRussell Gold, The Wall Street Journal’s pre-eminent energy reporter, has a new book about Houston wind energy pioneer Michael Skelly and his efforts to modernize the power grid. I reviewed Superpower: One Man’s Quest to Transform American Energy, on the Texas Monthly website:

Electricity has become commonplace because of billions of dollars invested in expanding power grids for more than a century. But for all that investment, the grid structure hasn’t changed much since my grandfather’s days. Large, centralized power plants generate electricity and send it across transmission lines to cities and towns served by a particular regional grid. That’s great, as far as it goes, but the system remains fragmented. If Texas runs short of power, it can’t simply order extra electricity from, say Kansas, because there’s no interconnection.

For years, monopoly utilities protected this setup. After all, they were guaranteed a steady rate of return by state regulators. Power flowed in only one direction—from generating plants outward. Accepting power directly into the grid from renewable sources like wind turbines and solar panels, they argued, would cause voltage to collapse and trigger blackouts—access to the wind and sun fluctuates too greatly. The only way to steadily keep the lights on was for utilities to control the flow of power from their own plants.

Michael Skelly wasn’t buying it. By 2009, he’d already built a successful wind farm operator, Houston-based Horizon Wind, and had decided to take on a new challenge: integrating wind and solar power into the nation’s grids.

Skelly is the focus of a new book, Superpower: One Man’s Quest to Transform American Energy by Wall Street Journal reporter (and Austinite) Russell Gold. As an energy writer in Houston, I encountered Skelly regularly—we sat together on panels, I interviewed him, and he even helped me track down sources for Texas Monthly articles. He’s a captivating guy, and he can be both intense and affable, but the prospect of an entire book about him gave me pause. Outside of Houston and energy-nerd circles, does anyone know Skelly? Is he really book-worthy?

Fortunately, in the capable storytelling hands of Gold, that issue is moot. Superpower is an engaging read. Skelly’s life provides the narrative thread, but the book is really a warning: Our electric grid has failed to keep up with the changes in generation sources and consumer habits. Want more wind and solar power? Great, but how do you get electricity from wind turbines in western Oklahoma to populated areas that actually need the power? Skelly’s plan was to build what Gold describes as a giant extension cord—a massive direct-current power line—that would ship electricity generated by wind farms in the Oklahoma Panhandle to the eastern power grid through a connection in Memphis.

Right away, Gold makes it clear that Skelly is more hard-charging capitalist than crunchy-granola renewables enthusiast: “Skelly wanted to make a profit, because profits would attract new investors and money into renewable energy.”

Skelly formed a new company, Clean Line Energy Partners, raised millions from private investors, and developed a plan that would bring thousands of megawatts—enough energy to power thousands of homes—into the existing grids. The result would be cheaper, cleaner energy. He also hoped to prove that utilities’ fears that wind and solar power would destabilize the grid were unfounded. He took on ignorant politicians (I’m looking at you, Tennessee senator Lamar Alexander), self-serving utilities, short-sighted bureaucrats, and NIMBY-minded landowners, who all have done their parts to ensure our national power grid remains a balkanized anachronism.

Read my full eview on the Texas Monthly website.

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Another example of how fracking has changed everything

mahmood and meSaudi Arabia will now buy natural gas from the United States. When I was in the Kingdom in 2011, the Saudis were talking about developing more of their own natural gas resources. The problem the country faces remains the same: its domestic oil consumption continues to rise, and the more oil it uses at home, the less it has to sell abroad. So the deal to buy U.S. gas makes sense, but eight years ago, the Saudis would never have believed that one day they’d be buying natural gas from us.

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The Oilman Who Loved Sustainable Energy

As we consider how George Mitchell’s legacy will shape this century — in energy, in sustainability, in cosmology, in philanthropy — let’s also take a moment to ponder the impossible, the unlikely, the unorthodox and even the quixotic.

Read my latest in the Houston Chronicle

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The new catalogs are here!

The new catalogs are here! The new catalogs are here! http://ow.ly/Wd9p50ul4ES @TAMUPress #energy #georgepmitchell #fracking

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The Saws of My Father

sawsI have three crosscut saws I never use. One I bought myself soon after I got married because I needed to cut something, and it seemed like a basic tool that I needed to have. The other two came from my father.

He always had a crosscut saw hanging from a peg over his work bench, just as I do now. In fact, my work bench is an imitation of his, right down to the 4x4s I use for the legs and the 2x6s for the top. It’s a design my dad developed over the years, and when we moved, one of the first things he did was build a new one.

My father died eight years ago this week. After I cleaned out his house, I collected all his tools and moved them into my garage. Many had rusted or deteriorated, left unused for too long in the Central Texas humidity during final years of his life. I was saddened by the state of their neglect, but I couldn’t bring myself to throw them away.

Now, my wife and I are “downsizing,” embracing the latest financial fad of middle-aged empty nesters, and one of my tasks is cleaning out the garage. Tool redundancy would be a logical place to start, yet after several months, it remains an uncompleted chore.

I open a drawer and see my father’s saws. I open another one and see his stainless-steel Black & Decker electric drill, a relic from Eisenhower’s America that probably is worth more as an antique than a tool. But it still works and its housing shines with the memories of all the holes my father and I drilled with it. There’s a soldering gun that hasn’t been used since my dad and I wired my model railroad when I was 11. There are hammers, wrenches, screwdrivers, hacksaws, backsaws and coping saws – a montage of mid-Twentieth century manual labor.

They are more than the touchstone of childhood memories. Tools were a part of who my father was, even after he shed his blue-collar career to become an academic. If he were to walk into my garage today, he would look at these unused, rusted remembrances and ask why I’ve kept them. He had a word for such sentimental retention – “junk.” (Decades ago, my mother boxed up family memorabilia, and my father labeled it “four generations of stuff – some junk.”)

I sort through the tools, moving them in the drawers but not actually moving them closer to the door. More than any of my father’s possessions that I still have, the tools feel as if they harbor his soul. I feel his presence most strongly when I pick up his favorite hammer or pull out the screwdriver that still bears the name of the family electrical business, M.G. Steffy & Sons, which dissolved in 1972.

The tools reflect a lifetime spent working with this hands, whether it was fixing a balky light switch in our home or rebuilding a 2,300-year-old Greek merchant ship half a world away.

To me, they also serve as a reminder of his overwhelming patience. My father never got visibly angry or frustrated. His tools were never thrown in frustration, and he never broke something he was working on because it wasn’t cooperating. If things weren’t going well, he would pour another cup of coffee or light a cigarette and think it through. I search for that patience within myself daily, yet it eludes me.

I spent countless hours watching him work with those tools, then helping him, and then having him watch me. But a generational chain was broken. My ancestors progressed from farmer to stonemason to electrician. They used tools to make a living. I work with my hands as a hobby, a diversion from the never-finished job of tapping out thoughts on a computer keyboard. My own children, exposed only to the occasional birdhouse-building scout project or the mandatory instruction of my “car camp,” have little interest in the excess tools in my garage.

Do I need three crosscut saws? Two hacksaws? Four hammers (three claw, one ball peen)? Three wooden mallets? A wood plane? Monkey wrenches that haven’t turned a pipe fitting in 50 years?

I do. Not in a practical sense, of course, but those old tools remind me of a willingness to take on every project, of a patience to do it well, and of the quiet satisfaction that comes with a board well cut or a screw well turned.

I close the drawers again and move on to the nearby shelf. Old door knobs and radiator hoses from a Honda Pilot? Those can go.

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